Value Creation Blog

According to CNN the wealthiest 1% in this country had a net worth of a little over $16,000,000 in 2010. The average American has a net worth of $57,000. Compare this to 1983 where the wealthiest group had a net worth of $9,600,000 and the average American had a net worth of $73,000. (Source CNN)

Something is wrong here if we’re to have a country where opportunity is there for all. Yes, I know opportunity really is there if you have the skills and ability to take advantage of it. Many in the middle class are sliding. Those who are hanging on are often doing so by their fingernails.

For me the larger problem is not the difference in net worth, it’s the income disparity. In 2006 the average American household made $46,326 for the year. The top 1% averages about $350,000 while the top 5% averages $167,000.[1]

Even a bigger problem is the disparity differences between CEO pay and the average worker’s pay. In 2007, the average CEO was making about 350 times the average workers pay. From 1990 to 2005 the average CEO saw their pay increase by 298% while the average production worker saw their pay increase by 4.3%. (This is according to the Institute of Policy Studies.)

My question is what makes a public company CEO worth 350 times more than the average worker? This is not good for our country, it’s not good for our tax base, and it’s not good for our future.

We’ve seen erosion in net worth of the middle class. We’ve seen a slide in the middle class and we’ve seen a slide in the American dream. Granted, we’re in the middle of the worst recession/depression we’ve had in 75 years but wouldn’t it make sense that all Americans suffer and not just the middle?

We have a consumer economy. Consumers can’t consume unless they are able to afford to consume. While the top keep getting large raises and the middle doesn’t we don’t have enough disposable cash to keep our economic engine running.

We have corporations holding on to over 2 Trillion dollars in cash. This is money that could be used as dividends for stockholders or as capital investment. The problem with capital investment is the corporations have not been able to find good places to invest. I believe that instead of hoarding cash corporations should distribute this cash to their shareholders who are mostly middle class owners of mutual funds.

In my opinion large corporations have been stealing from their shareholders in two ways. First, they hold onto cash, which should be paid to the shareholders as dividends. Second, they overpay those in the corporate suites of America.

If the average CEO saw their pay increase by 298% and the average worker by 4.3% then some of that money probably should have gone to the average worker in improved earning ability and some through dividends to the owners of the company, the workers again.

Institutions have let down the middle class. Most stock assets in this country are held in mutual funds or pension funds. Those in the middle class own the vast majority of both of these assets.

Institutions have the ability to change corporate behavior through whom they vote to serve on companies’ boards of directors. The institutions that manage stock for the benefit of their fund shareholders are delinquent in their duty.

The institutions should do two things. First they should force salaries in the C Suites down. Some of this money should be re-allocated towards wages for the average worker. The second is to force unreasonable cash accumulations to be given to the shareholders as dividends.

It’s about time that fund companies who are fiduciaries for their shareholders start doing their job. Instead of allowing a 298% increase in earning power, the CEO’s of America’s companies should get the same sort of increase as their rank and file employees.

If this change was adopted maybe corporate leaders would start making sure everyone either wins or loses. We can’t continue the win/lose atmosphere that Corporate America now operates within.

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The opinions in this blog entry are those of Josh Patrick. NFP Securities Inc., does not have an opinion on the thoughts of the author.

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